There are several perks of being self employed. There’s no one to boss around, you have flexible working hours, the freedom to do what you want whenever you want, the luxury to pick and choose contracts or businesses and the host of tax benefits or financial rewards. Self employed professionals can save thousands on taxes. There are dozens of deductibles that a self employed professional can claim but that very saving or smart strategy will cost one dearly at the time of applying for a mortgage.
Let us understand one thing at the very onset. There are many self employed mortgage options. Whoever said that people running their own enterprises or working alone don’t qualify for a mortgage is only presenting you half a fact. Yes, being employed makes one a more desirable applicant for a bank. Even if you were running a business with some or many employees and your business and personal taxations are segregated completely, you will face fewer hurdles. It is the status of being self employed that comes with some inherent complications. But, there are many self employed mortgage options.
The Reality Of Self Employed Mortgage
Mortgage providers or lenders are typically the traditional banks. Conventional financial institutions also offer mortgage. All these organizations rely on the take home income to determine the eligibility of a homebuyer. When you are employed, you cannot hide your take home. You can claim certain deductibles but you will have to report your income to almost the last cent. When you are self employed, you can report half of your actual income as take home and camouflage the rest as deductibles. You can show numerous expenses and account it for your business expenditure and easily get away from paying taxes. While this is smart, this makes the banks see very little income or less than desirable take home income. Thus, they deem such self employed people ineligible.
Preparation Is The Key
Self employed mortgage has some distinct requisites. How long one has been self employed, professional engagements prior to becoming self employed, yearly income including taxes filed and take home and the present financial profile including outstanding debts and assets, all would come under consideration.
Self employed mortgage requires planning. A professional must file taxes and report take home income bearing in mind the eventual requirement of mortgage lenders. Increasing the take home income is necessary if one is underreporting it. Yearly increase in the take home income is also necessary. While the income can stay stagnant and there can be some fluctuations in certain months but the income cannot dip dramatically from one year to the next. This will raise the red flags for mortgage lenders. The premise of self employment is unpredictable and if an applicant shows that unpredictability in tax returns or incomes over the years, then the mortgage lenders or banks would become shaky and may outright reject the application.
All these odds can be overcome with deft planning and meticulous preparation.